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REDUCTION IN EPF CONTRIBUTION 12 TO 10% FAQ

Various measures have been announced from time to time to provide relief to the employers and employees of the establishments covered under the EPF & MP Act, 1952 distressed by Lockdown to prevent spread of COVID-19 and other disruptions due to Pandemic.

The reduction in statutory rate of contributions from 12% to 10% for wage months May, 2020, June, 2020 and July, 2020 for all class of establishments covered under the EPF & MP Act, 1952 announced on 13.05.2020 by the Central Govt. as part of Atma-Nirbhar Bharat package has been notified vide SO 1513 (E) dated 18.05.2020 published in the Gazette of India. The notification is available under the TAB- COVID-19 on the home page of EPFO website

The above reduction of rate of contribution is not applicable to establishments like Central and State Public Sector enterprises or any other establishment owned or controlled by or under control of the Central Govt. or State Govt. These establishments shall continue to contribute @ 12% of basic wages and dearness allowances.

The reduced rate is also not applicable for PMGKY beneficiaries, since the entire employees EPF contributions (12% of wages) and employers’ EPF & EPS contribution (12% of wages), totalling 24% of the monthly wages is being contributed by the Central Govt.

Reduction in rate of EPF contributions from 12% to 10% of basic wages and Dearness allowances is intended to benefit both 4.3 Crore employees/members and employers of 6.5 lakhs establishments to tide over the immediate liquidity crisis to some extent.

As a result of reduction in statutory rate of contributions from 12% to 10%, the employee shall have a higher take home pay due to reduction in deduction from his pay on account of EPF contributions and employer shall also have his liability reduced by 2% of wages of his employees. If Rs.10000/- is monthly EPF wages, only Rs.1000/- instead of Rs.1200/- is deducted from employee’s wages and employer pays Rs.1000/- instead of Rs.1200/- towards EPF contributions.

In Cost to Company (CTC) model, if Rs.10000/- is monthly EPF wages, in CTC Model the employee gets Rs.200/- more directly from employer as employer’s EPF/EPS contribution is reduced and Rs.200/- less is deducted from his/her wages.

Under the EPF Scheme, 1952 any member has the option to contribute at a rate higher than statutory rate (10%) and employer can restrict his contributions @ 10% (statutory rate) in respect of such employee.

FREQUENTLY ASKED QUESTIONS

Reduction in statutory rate of EPF contribution
from 12% to 10%

Q.1: What is revised rate of EPF contribution
announced by the Central Govt. under Atmanirbhar Bharat package?

Ans.Under this
package the statutory rate of EPF contribution of both employer and employee
has been reduced to 10 percent of basic wages and dearness allowances from
existing rate of 12 percent for all class of establishments covered under the
EPF & MP Act, 1952.

Q 2: What is the objective
of reduction in rate of contributions?

Ans: Reduction
in rate of EPF contributions from 12% to 10% of basic wages and Dearness
allowances is intended to benefit both 4.3 crore employees/members and
employers of 6.5 lakhs establishments to tide over the immediate liquidity
crisis to some extent during Pandemic situation.

Q 3: Whether any notification has been issued
under the EPF & MP Act, 1952 for reducing the rate of contributions? If so,
how can I access the notification?

Ans. The
reduction in statutory rate of contributions from 12% to 10% for wage months
May, 2020, June, 2020 and July, 2020 has been notified vide SO 1513 (E) dated
18.05.2020 published in the Gazette of India. The notification is available
under the TAB- COVID-19 on the home page of EPFO website.

Q.4: What is the period for
which reduced rate of contribution is applicable?

Ans. The
statutory rate of contribution will be 10% for wage months- May, 2020, June,
2020 and July, 2020.

Q 5. Who are eligible for
the reduced rate of contributions?

Ans. It
is applicable to all class of establishments covered under the EPF & MP
Act,1952, except the establishments
like Central and State Public Sector enterprises or any other establishment
owned or controlled by or under control of the Central Govt. or State Govt.

The
reduced rate is also not applicable to establishments eligible for PMGKY
benefits, since the entire employees EPF contributions (12% of wages) and
employers’ EPF & EPS contribution (12% of wages), totalling 24% of the
monthly wages is being contributed by the Central Govt.

Q 7: How does the reduced
rate of contributions help the employees and employer?

Ans: As a
result of reduction in statutory rate of contributions from 12% to 10%, the
employee shall have a higher take home pay due to reduction in deduction from
his pay on account of EPF contributions and employer shall also have his
liability reduced by 2% of wages of his employees. If Rs.10000/- is monthly EPF
wages, only Rs.1000/- instead of Rs.1200/- is deducted from employee’s wages
and employer pays Rs.1000/- instead of Rs.1200/- towards EPF contributions.

Q 8: I get salary under Cost to Company (CTC)
model, will the reduced rate of contributions from 12% to 10% still benefit me?

Ans: In Cost to
Company (CTC) model, if Rs.10000/- is monthly EPF wages, in CTC Model the
employee gets Rs.200/- more directly from employer as employer’s EPF/EPS
contribution is reduced and Rs.200/- less is deducted from his/her wages.

Q 9. Is the 10% rate of contribution applicable to establishments which
get registered with EPFO during wage months May, 2020, June 2020 and July,
2020?

Ans. Yes.
Establishments covered during wage months of May-July, 2020 will be eligible
for reduced rate for eligible remaining period from date of coverage.

Q 10. What will be rate of contribution for
administrative charges and insurance?

Ans. There is no
change in the EPF administrative charges (0.5% of EPF wages subject to minimum
prescribed) and EDLI contributions (0.5% of wages) both payable by employers.

Q 11. How is benefit availed? One has to pay at
full rate and claim reimbursement later or direct payment at reduced rate can
be made.

Ans:
Establishment has to remit dues at reduced rate through the Electronic-Challan
cum Return (ECR) itself.

Q 12. Can the employer or employee pay at higher
rate or the contribution rate of 10% is mandatory?

Ans: The
reduced rate of contribution (10%) is minimum rate of contribution during
period of the package. The employer, employee or both can contribute at higher
rate also.

Q 13. How the reduced rate of contribution will
impact amount of pension in longer run?

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Ans:
The EPS contributions 8.33% of wages (subject to ceiling of Rs.15000/-) is
diverted from employer’s share of EPF contributions. The reduced rate of EPF
contributions to 10% will not reduce the pension contributions or benefits.

Q. 14. My establishment will not be able to
remit dues timely during the scheme period. Is it still eligible for reduced
rate of contribution?

Ans. Yes, the
rate of contributions is 10% for the three wage months- May, 2020, June, 2020
and July, 2020 irrespective of date of payment.

Q. 15. Is the option to contribute at reduced
rate available to establishments availing PMRPY benefits?